Beyond Origins the Discussion

Investment Property

May 17th, 2008

Investment Property

Liz writes: The idea of owning rental real estate seems to be gaining popularity as investors tire of the swoops and swoons of the stock market. Once you’ve made the decision to buy rental property, your real work begins. Finding a profitable rental property usually takes time, connections and plenty of research.
Know your time horizon

Investment Property

As with any other investment, you should have a good idea how long you plan to own a rental property before you buy it, says Robert Cain, publisher of the Rental Property Reporter newsletter.
The longer you plan to own the property, the more you’ll probably need to invest in maintenance, repairs and improvements, Cain said.
You also may face more investment risk with a shorter time horizon. Although your rental will almost certainly appreciate over 20 years, it could easily lose value in the next five, particularly if you’re buying in an overheated market. For many small investors, long-term ownership makes the most sense, said Pat Callahan, an attorney, landlord and founder of the American Association of Small Property Owners. Find enough rental properties, and being a landlord may become your day job.
Develop a network
Experienced landlords find their properties in a variety of ways. Some run ads in local newspapers.
Several landlords recommended joining a local landlord or property owner’s association to make contacts. Callahan’s Web site offers links to local groups, as does the National Real Estate Investors Association.
“When you begin to own rentals, all the other investors start coming out of the woodwork,” said Sean Hoppe, a landlord in Pottsville, Pa., who owns 11 properties. You also can try approaching landlords directly to see if they’re willing to sell, by calling the numbers listed on rental ads in the classifieds, by cruising neighborhoods looking for “for rent” signs or by talking to any landlords you know personally.
The landlord of the three-unit building where Bob had rented for 15 years was tired of the hassles and ready to sell.
Lenders usually require bigger down payments, higher interest rates and generally stronger finances when you’re buying rental property.
Landlords say it also pays to have a substantial cash reserve left over after buying a property.

How long should you own investment property?

Here are some tips.

No, we’re not referring to the length of your tee shots, or whether your grass needs mowing, just yet. It’s a tax query, here, which we hear repeatedly.

Maybe you have this house which you’ve owned for a while. It’s been sort of a rental, sort of a second (maybe vacation) home. But you find one you like better. So what about the old place? Rent it out, maybe? Dump it, maybe? And then you bump in to your tax adviser on the golf course, and just having heard about the tax deferred “1031 exchange,” your radar goes up, as you think about a way to sell the old place and defer the tax bite.

You find out that in order to qualify for tax deferral under Internal Revenue Code Section 1031, you must have “owned and used” the property for business or investment purposes. But what does “owned and used” mean? How long must you have “owned and used?”

And for once, the Revenooers come to your rescue with some guidance. In a recent statement, they said, “The service recognizes that many taxpayers hold dwelling units primarily for the production of current rental income, but also use the properties occasionally for personal purposes. In the interest of sound tax administration, (we) provide taxpayers with a safe harbor under which a dwelling unit will qualify as property held for productive use in a trade or business or for investment use under Section 1031 even though a taxpayer occasionally uses the dwelling unit for personal purposes.”

Welcome news, for a change, from Uncle Sam. Rich Uncle now pontificates that a dwelling unit which a taxpayer intends to be relinquished property under Section 1031 will qualify as property held for productive use in a trade or business or for investment if:
1. The unit is owned by the taxpayer for at least 24 months immediately before the exchange, and
2. Within the 24 month period, in each of the two 12 month periods immediately preceding the exchange —
a. The taxpayer rents the unit at a fair rental value for 14 days or more, and
b. The period of the taxpayer’s personal use does not exceed the greater of 14 days or 10 percent of the days rented.

http://www.revver.com/video/879681/refinancing-online/
http://www.revver.com/video/879797/refinance-solutions-fha/
http://www.revver.com/video/879806/adjustable-rate-mortgages/

Entry Filed under: Home Improvement